You think that was arbitrary? Do you have any idea how much work stores put in to setting prices? It’s more complex than this, but to illustrate, companies will maximize for total revenue, so quantity sold times price. And they know that whenever they raise the price, even by ten cents, some number of people will not purchase that item. They only raise prices if they predict the decline in sales will be more than offset by the increase in revenue per item.
It may seem arbitrary to you, but it’s anything but. The prices in the store are already at what the company estimates to be the optimum total revenue level.
yeah you’re right about your point so far, but this is different. if every grocery store in town were forced to raise prices by 5%, then they could all do it because all their competition does it too.
but if only one store decides to do it, then the customers would change to the other store nearby who offers lower prices.
You think that was arbitrary? Do you have any idea how much work stores put in to setting prices? It’s more complex than this, but to illustrate, companies will maximize for total revenue, so quantity sold times price. And they know that whenever they raise the price, even by ten cents, some number of people will not purchase that item. They only raise prices if they predict the decline in sales will be more than offset by the increase in revenue per item.
It may seem arbitrary to you, but it’s anything but. The prices in the store are already at what the company estimates to be the optimum total revenue level.
yeah you’re right about your point so far, but this is different. if every grocery store in town were forced to raise prices by 5%, then they could all do it because all their competition does it too.
but if only one store decides to do it, then the customers would change to the other store nearby who offers lower prices.